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Plug-ins and EVs: China’s key to entering mature market

SHANGHAI – Electric vehicles and plug-in hybrids could be China’s key to entering mature markets.

The government thinks so, and so do Chinese and Western executives working in China, according to participants at the 2009 Presidents’ Forum and CBU/CAR‘s 14th Annual International Conference here.

“In terms of electric vehicles,” said Ruben Van Doorm, strategy manager for TNT NV logistics company, “China is taking the lead.”

Chinese automakers ca’t easily follow the same path into Europe and the United States that the Japanese and Koreans did, starting with low-cost entry level cars and working their way upscale over time. For one thing, safety, pollution and fuel economy standards in the mature market are barriers to low-cost entry. For another, everybody has low-cost production sites now, in East Europe or Latin America or China.

But the Chinese government sees what Warren Buffet saw when he invested in BYD Co.: opportunity.

Buffet sees that China has a growing automotive industry, an infrastructure under construction, a more accepting market, and less need for electric vehicle range. China sees that electric drivetrains are essentially simpler than internal combustion engines, and while international automakers have a century head start on gasoline and diesel technology, they are only a few years ahead on electric cars.

If cars like the Chery S18 or BYD F3DM are not yet ready for export, they are on the streets of China. BYD has sold 80 F3DM dual mode hybrids to the Shenzhen government, and at Auto Shanghai 2009 it displayed a larger F6DM and the e6 pure electric vehicle. Great Wall Motor showed the GW Kulla EV, Geely had its IG electric vehicle concept and Chery had a Riich M1 electric prototype.

“There must be 10,000 EVs operating in China, or more,” said Keith Lomason, executive director of Magna Automotive Technology and Service (Shanghai) Co., Ltd. “It’s easy to say and easy to forget that 80 percent of cars are sold to first time buyers.

“They do’t have the same expectations, they did’t grow up with ‘See the USA in your Chevrolet’ and the idea that you drive across the country.  They use a car to go to work, to go shopping, to drive to the park on weekends.

“Preparing the infrastructure will be easier here than a lot of places. The government can just say that 10 percent of all underground parking places will be wired for recharging.”

Beyond the electric cars and buses in various demonstration projects are the 20 million electric scooters and bicycles on Chinese roads. Some big cities have banned the two-stroke versions, creating a massive new industry.

In addition, China is producing thousands of special purpose EVs like golf carts and airport vehicles. One company, said Tsinghua University Professor Chen Quanchi, has exported 100,000 golf carts and another has exported 10,000 electric hunting vehicles.

The Chinese will be ready for electric cars “because they’ve been driving EVs already,” said Kevin Quinlan, vice president of Delphi Corp.’s powertrain division. “They are used to plugging in their scooters at night.”

The economic crisis in Europe, Japan and North America is giving China a chance to catch up with the international players, said Quinlan. Where other companies are delaying optional development projects, China is forging ahead. Next year, SAIC will launch its first own-brand hybrid, the Roewe 750, with a control unit, power electronics and thermal management from Delphi and lithium-ion batteries from A123 in the United States.

SAIC has said it is investing as much as $1 billion in hybrid research and development, aiming at getting several vehicles on the market in China by 2012. An engineer on the project said SAIC is concentrating on electric vehicles and plug-in hybrids. He said plug-ins are the best long-term solution, because Chinese families with only one car will want to use it for longer trips as well.

“The Chinese government’s determination to bring EVs to market is clear and unambiguous. It will spur the U.S. and European governments,” said Dominik Declercq, the China representative of the European automakers’ association, ACEA. “The question is, will it work? There is not a strong record of success. If this is the exception, China will push world to EVs quicker.”

One key to China making its electric vehicle push a success is cooperation among national, regional and city governments. “If consensus is achieved, then I am confident that China can take the lead in this industry,” said Huang Younghe, director of Automotive Industry Policy Research at CATARC.

“For new energy vehicles … China is on the same level or even leading other countries,” BYD’s CEO Wang Chuanfu told CNN in April.

“One of the biggest advantages in China is the long-term view. China began working on electric vehicles and fuel cells 15 years ago,” said Bong-heon Ahn, executive managing director of Beijing-Hyundai’s technical center. However, he said, to develop environmentally friendly technology, market conditions must be taken into consideration as well.

The market is not favorable at the moment. Even in China, sales are growing less rapidly than in recent years.

Huang believes that the financial crisis in the West now presents a market condition favoring the introduction of new energy vehicles. Some international auto companies in grave financial difficulty have had to reduce R&D expenses, and Delphi’s Quinlan sees how Chinese companies can take the lead “if they have the right technology when the rest of the world is not doing it. It’s an opportunity if they can provide sale price and cost.”

BYD’s overseas trade division manager, Henry Li, disagrees. He believes BYD will do better if more companies are bringing electric vehicles to the market, encouraging faster development of the infrastructure.

“This crisis will not help anybody,” he said. “The whole industry suffers. We hope everybody contributes to this process to promote electrification of vehicles.”

Getting new energy vehicles to the market will require government policies that push in that direction because aside from micro-hybrids, the technologies are not price-competitive with internal combustion engines.

China, with its strong central government, can demand changes that require longer, more delicate negotiations in other countries. And China needs to address the problem of fuel. While it produced enough gasoline on its own several years ago, imports now make up 50 percent of the supply.

“The center of gravity for implementing these new policies is China,” said Tobias Monden, vice president of MBtech, a subsidiary of Daimler AG. “Fuel and energy are the most critical issues for the future here.”

Energy consumption per GDP unit in China is almost four times more than in the United States and six times more than in Japan, said David Chen, vice president of GM China, but the push to new energy has “a great potential to address China’s energy challenges.

“Our vision is greater electrification of the vehicle,” he said, noting that the Chevy Volt extended range electric vehicle would be offered in China in 2011, a year after it is launched in the United States.

However, he said, solving the energy question requires many solutions, not one “silver bullet.”

In April 2008, GM and its partner SAIC established the China Automotive Energy Research Center with Tsinghua University to study five different energy areas: biofuels, oil and gas, coal, electricity and hydrogen.

Daimler and MBtech have endowed university chairs for electric vehicle research.

“There is a great push forward, a kind of leap frogging happening when it comes down to basic technologies,” said Monden. “Wan Gang, Minister for Science and Technology in China, is pushing strongly into new technologies.”

He said that German companies are far less worried about intellectual property issues now, and “research activities and cooperations are closer and closer.”

China’s goal is to give its companies a strategic advantage on world markets, but if it succeeds it could also be a sort of moral leader in a world combating global warming.

“China has a unique opportunity to set an example in fuel efficiency across the globe,” said David Royce, vice president for strategic planning at TRW Automotive.

The government’s push and practical considerations are bringing the industry closer together.

For example, said Li Feng, deputy director of the Foton New Energy Vehicle Center, “we are building alliances with universities and suppliers for new energy vehicles.

“At the end of last year, the Ministry of Science and Technology and the city of Beijing launched a new energy research task force at Foton, involving multiple players across supply chain, including overseas technology providers. The center and board have been created. The supply chain has already taken shape for new energy vehicle.”

The Chongqing region in Western China, where Chang’an New Energy Vehicle Co., Ltd. is located, “wants to put carmakers and universities together with local governments to make a new energy production base with a complete industrial chain,” said Zhou Bo, president of the company. “This alliance will look to the market for guidance.

“Technology is not the silver bullet. We need infrastructure and a supply chain. We need a lot of education on the consumer side, and we need to significantly cut our costs.”

Chang’an has the capacity for 30,000 new energy vehicles a year, and hopes to be producing 25,000 in 2015.

Such cooperations go in the same direction as government pressure on companies to achieve larger scale, and the result could be some new world players.

“China is encouraging vertical integration, especially in two areas, emissions and safety,” said Delphi’s Kevin Quinlan. “I keep telling our people in Delphi that three or four Chinese companies will become big and powerful. We do’t know which ones, but we are watching them and working with them. And there will develop three big suppliers, like a Denso or Aisin or Bosch.”


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